Is the Indian advertising industry lagging behind?

The low ratio of advertising expenditure to GDP reflects a harsh reality

India is a huge country, and according to some expectations, it will be an economic superpower in the next 50 years or so.

That's not exactly the idea one would get if one looked at the advertising spend. A recent PriceWaterhouseCoopers survey says going by the ratio of advertising expenditure to Gross Domestic Product (GDP), the country lags behind even developing economies like Brazil, Thailand and Indonesia.

Take this. In India the ratio of advertising expenditure to GDP is about 0.4 per cent, which is quite low compared to developed economies like the US (1.3 per cent), the UK (1.1 per cent) and Germany (0.9 per cent) or developing economies like Brazil (1.6 per cent), Thailand (0.9 per cent) and Indonesia (0.7 per cent).

So does the low ratio of ad spend to GDP reflect a failure? Media planners feel that instead, it vindicates the theory of CK Prahlad, professor of corporate strategy and international business, University of Michigan Business School. Prahlad, writing in the Harward Business Review, said India needed "to create a market at the bottom."

Media planners say all this boils down to one single fact - rural India, which contributes to the GDP in a substantial way, still remains largely cut off, and is not touched by advertising. "The rural market is inaccessible and unreachable to the advertising industry at large. About 70 per cent of Indians live in the villages, and they contribute a substantial chunk to the GDP. However, not a lot of advertising is targeted at them," points out Atul Phadnis, director, S-Group, TAM Media Research.

Not that the task is easy. India still has the world's largest number of poor people in a single country. Of its nearly 1 billion inhabitants, an estimated 350-400 million are below the poverty line, 75 per cent of them in the rural areas.

Most of Indian advertising, except for some products like soaps, and cheaper television or radio sets, is targeted at the relatively affluent middle class. "The percentage of advertising to the GDP will be higher in countries that are not a 'necessity' economy like ours, where a lot of people struggle to fulfill basic needs. The advertising that is done here is basically to convince people who have one car to buy one more," quips Anand Halve of Mumbai-based advertising shop chlorophyll.

Another problem is the concentration of advertising in the country. To take just one example, of the Rs 9,000-crore ad pie in the country, the lion's share of up to 75 per cent is cornered by seven to eight players - television channels with a mass reach or big regional players. And most advertisers concentrate their energy on the 7.00 pm to 11 pm slot - defined as prime time. Much of the advertising is too fast and too cluttered making only the best stand out. For example, there were 3.2 million ad spots on TV in 2001, up 34 per cent from the previous year while ad secondage was 65.7 million, up 26 per cent.

Even future growth in the industry is likely to be concentrated rather than dispersed. The PriceWaterhouse Coopers study also says that, as the Indian economy develops, its advertising expenditure to GDP ratio will go up to 0.5 per cent over the next five years.

However, going by current trends, most of this growth is likely to benefit a few television channels, with at least 60 per cent of the estimated Rs 81 million ad spend in 2005 going to television. Meanwhile, even new media vehicles like the Internet is predominantly urban. A million users are added every month and the potential audience of Net via cable is 150 million. Another encouraging sign is the demographic profile of the Internet user - young with up to 70 per cent in the 15-30 age group, fairly affluent.